Cleo Folkes

We had a choppy 2019 where the B-word dominated politics and daily life in the UK. After the December election outcome the property industry became turbo-charged, with confidence having returned in the market after getting past the worst of uncertainty.

But from Brexit and Boris we have moved on to the C-word: Coronavirus, COVID-19, contagion and containment. In the space of 1 week markets completely changed. I have changed what I do myself!

What will happen now? We have seen exponential growth in cases of COVID-19 in China, but with the contagion successfully being contained by massive lock-downs. Italy has now opted to do the same. As far as we know it should prove effective.

What happens when the lock down stops and people start to mingle and travel again, who knows. We also don’t know if the virus will wither in the summer heat or if it will mutate into something more unpleasant. Probably not. Yet we don’t know, nor how long it will last, and that is one thing investors hate: uncertainty.

With the prices of shares falling dramatically on stock markets people sought safety in quality bonds. As property is often seen as a bond-proxy this makes property seem attractive on a yield-comparison basis. Property yields, although low, are still much higher than for bonds.

In property the same flight to safety is likely to take place as well, and some segments of retail will be even harder hit than they were before. How property is being used has been going through structural change, and the COVID-19 virus might speed up the change. Will people work from home and food-shop on-line more?

I myself have stopped going out except for the most essential things as I have fragile loved-ones to protect. Many people have stopped going on discretionary sales-splurges in physical stores. Besides food stores and pharmacies, on-line is likely to get a boost whilst footfall on the high street slumps.

The impact is on demand and supply, a double whammy. It affects virtually everything, but especially retail, hospitality & leisure, and transport. London has 70,000 registered taxi-drivers alone! Supply-lines have been disrupted, factories affected. We await measures from the UK government to help contain this crisis, and for assistance to business.

We don’t know exactly what will happen. But with footfall down, badly positioned and poorly capitalised businesses will go to the wall. That will hit landlords. INTU wasn’t anyone’s favourite already, and it looks decidedly even more dicey now. The retail sector has had more than its fair share of tenant defaults in the recent past. The risk is of business contagion as we saw in 2008-2009, especially if the economy is badly hit.

There are also positives, such as the cost of debt will be lower. The oil price also just became a lot cheaper! Although an oil price war just adds to a sense of uncertainty. If you are well-positioned with long leases to strong tenants you can take on cheap debt to magnify returns: hopefully on the upside!

In the face of a more challenging occupier market it will sort the wheat from the chaff.


The author, Cleo Folkes, is CEO of Property Overview, a property training and consultancy company servicing the property industry.

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